Ya know, if you guys ever decided to make a horror game based on Junji Ito's works, I'd throw money at the screen until it started eating them.
Then again Ito's stuff is pretty much a japanese Lovecraft on steroids. The man is pure genius at horror, but he doesn't do subtlety. In Uzumaki, it starts out pretty insane (A guy gets an obsession with spirals and breaks every bone in his body to form himself into one). But it somehow manages to go even further down the rabbit hole. Until the thing turns into a surreal nightmare. I don't know if this clashes too much with your own perception of what horror should be.

Still though, tell your monster designer to read some Ito.

Although Ito's stuff might look silly when not in 2D.

Also, if you want to evoke the question whether or not everything is real, I'd point you towards the infamous question posed in Silent Hill 3 (which you, no doubt, have played):
"Monsters, they look like monsters to you?"